It’s easy to see the attraction Conagra Brands (CAG 1.15%) These days. Investors’ income will be diluted at the 9.4% yield. It’s a name you know, and since packaged goods falls into the consumer defensive category, some may think it’s a safe way to achieve massive quarterly distribution.
This could be a big mistake. Let’s start with payments. The 9.4% dividend collected over the last year may sound good, but the stock has declined 42% in that time. Suddenly, it’s not the deal you thought would be a moneymaker. The high-yield stock hit a 17-year low this month.
Conagra has problems. Revenue is declining for the third consecutive financial year. Its operating profit is declining significantly for the second consecutive financial year. Conagra has suffered nine-figure goodwill losses in three of the last four years. This is not a good place to live. Might I suggest you aim elsewhere for dividend stocks?
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right on target
Target (TGT +1.48%) Still in the midst of a turnaround, but the market likes what it sees. target stock An increase of 35% as a new CEO excites the investment community. Conagra has a new leader coming in June, but it will be a tricky situation to fix.
Inflationary pressures are weighing on both businesses, but Conagra doesn’t have the pricing flexibility to pass it on to its customers. Its trailing gross margin is at a 14-year low. Target has seen its gross margins improve in two of the last three fiscal years.
Target is yielding only 3.5%, but that’s comparable to what top-yielding money market funds are paying these days. It is also good for money. It has increased its dividend for 54 consecutive years, making it one of the dividend king. Conagra stops increasing its dividend in 2023, and maintaining the current distribution will be a challenge.
today’s change
(1.48%) $1.92
current price
$132.10
key data points
market cap
$60B
day limit
$129.70 -$133.10
52wk range
$83.44 -$133.10
volume
5.9K
average volume
6
gross margin
25.44%
dividend yield
3.44%
Analysts believe Conagra will be able to barely cover this year’s $1.40 per share in distributions with earnings of $1.70 per share. Target’s payout ratio of 58% is more reasonable based on the midpoint of Target’s bottom-line guidance for this year.
A big problem for Conagra at the moment is the success of GLP-1s and other weight loss drugs, which make consumers less hungry. In short, Slim Jim is no match for Conagra’s many Slim Jims. The target will be absolutely fine. It also sells food, but slimming Target shoppers may also have to update their wardrobes to new sizes in the new normal.
The target is clicking again. This is just one of three S&P 500 Stocks yielding more than 3% that have risen at least 30% this year. Conagra is going another way. Pay attention to yield signs if you want to go in the right direction.